[Federal Register Volume 84, Number 226 (Friday, November 22, 2019)]
[Rules and Regulations]
[Pages 64680-64696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24960]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 1, 2, 7, 46, and 52
[FAC 2020-02, FAR Case 2013-002; Docket No. FAR-2013-0002, Sequence No.
1]
RIN 9000-AM58
Federal Acquisition Regulation: Reporting of Nonconforming Items
to the Government-Industry Data Exchange Program
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to require contractors and
subcontractors to report to the Government-Industry Data Exchange
Program certain counterfeit or suspect counterfeit parts and certain
major or critical nonconformances.
DATES: Effective: December 23, 2019.
FOR FURTHER INFORMATION CONTACT: Ms. Marilyn E. Chambers, Procurement
Analyst, at 202-285-7380, or by email at [email protected], for
clarification of content. For information pertaining to status or
publication schedules, contact the Regulatory Secretariat Division at
202-501-4755.
[[Page 64681]]
Please cite FAC 2020-02, FAR Case 2013-002.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule at 79 FR 33164 on June
10, 2014, in the Federal Register, to implement sections 818(c)(4) and
(c)(5) of the National Defense Authorization Act (NDAA) for Fiscal Year
(FY) 2012 (Pub. L. 112-81, 10 U.S.C. 2302 Note), which required DoD
contractors and subcontractors to report counterfeit or suspect
counterfeit electronic parts purchased by or for DoD to the Government-
Industry Data Exchange Program (GIDEP).
The Presidential Memorandum on Combating Trafficking in Counterfeit
and Pirated Goods, issued April 3, 2019, states that ``[c]ounterfeit
trafficking . . . may threaten national security and public safety
through the introduction of counterfeit goods destined for the
Department of Defense and other critical infrastructure supply
chains.'' Accordingly, the Federal Government must improve coordinated
efforts to protect national security from the dangers and negative
effects of the introduction of counterfeit goods. This rule furthers
that aim by requiring contractors to screen for and report critical
nonconformances, including counterfeits and suspect counterfeits, which
may impede the performance of mission critical systems, where high
level quality standards are essential to protect the integrity of
systems requirements, and are necessary for national defense or
critical national infrastructure.
The U.S. Intellectual Property Enforcement Coordinator's Annual
Intellectual Property Report to Congress, dated February 2019,
reiterated: ``Counterfeiting is a significant challenge that can impair
supply chains for both the public and private sectors. In the context
of the U.S. Government, acquiring products or services from sellers
with inadequate integrity, security, resilience, and quality assurance
controls create significant risks, from a national security and mission
assurance perspective as well as from an economic standpoint (due to
the increased costs to American taxpayers). Counterfeiting can have
particularly significant consequences for the Department of Defense
(DoD) supply chain, by negatively affecting missions, the reliability
of weapon systems, the safety of the warfighter, and the integrity of
sensitive data and secure networks.'' (Appendix, p.51.) This rule is
likely to have a positive impact on national security and critical
infrastructure where the Government procures elements of the
infrastructure, for example, Federal Aviation Administration air
traffic control systems, Department of Agriculture food safety
equipment, all national defense programs, Department of Transportation
monitoring of transportation systems, Department of Energy monitoring
of power generation and distribution networks, etc.
By reporting in GIDEP, contractors are able to share knowledge of
counterfeits and critical nonconformances which reduces the risk of
counterfeit and other nonconforming items entering the supply chain and
being used in high value, mission critical defense, space, or critical
infrastructure systems where system failure could threaten national
security through the loss of satellite-based critical information,
communication and navigation systems, or other systems resulting in the
loss of the ability to control connected systems or secure information
within those systems. Counterfeits are not produced to meet higher-
level quality standards required in mission critical applications and
are a significant risk in causing failures to systems vital to an
agency's mission. For weapons, space flight, aviation, and satellite
systems, these failures can result in the death, severe injuries, and
millions of dollars in system damage or loss. For example, if
counterfeits are installed in a missile's guidance system, such missile
may not function at all, may not proceed to its intended target, or may
strike a completely unintended location resulting in catastrophic
losses. Critical nonconforming and counterfeits items may cause
failures in navigation or steering control systems, planes and flight
control. Counterfeits can create ``backdoors'' into supposedly secure
programmable devices which could be exploited to insert circuit
functions to steal information and relay it to third parties or command
or prevent the device from operating as designed. Defense, space, and
aviation systems in particular must meet rigorous component
specifications; failure of even a single one can be catastrophic
causing serious problems and placing personnel and the public in harm's
way.
GIDEP is a widely available Federal database. Timely GIDEP
reporting and screening allows all contractors to promptly investigate
and remove suspect parts from the supply chain and to ensure that
suspect parts are not installed in the equipment which would result in
experiencing high failure rates. With this knowledge, contractors can
also avoid costs resulting from production stoppage, high failure
rates, rework, or lost time due to maintenance turnaround to remove and
replace failed parts. This effect is magnified by the fact GIDEP
permits contractors to learn from the experiences of others across
industry.
This rule concentrates on complex items with critical applications
where the failure of the item could injure personnel or jeopardize a
vital agency mission. In accordance with the Office of Federal
Procurement Policy (OFPP) Policy Letter 91-3, all Government agencies
use GIDEP as the central data base for receiving and disseminating
information about nonconforming products. Contractor participation has
been largely voluntary. This rule requires contractors to screen and
report major or critical nonconformances in order to reduce the risk of
counterfeit and other nonconforming items entering the supply chain and
impacting the performance of mission critical items where item failure
could result in loss of high value items or loss of life.
GIDEP is a cooperative activity between government and industry
participants seeking to reduce and ultimately eliminate expenditures of
resources by sharing technical information essential during research,
design, development, production and operational phases of the life
cycle of systems, facilities and equipment. Since GIDEP's inception,
participants have reported over $2.1 billion in cost avoidance. That
means without GIDEP, participants could have potentially realized
additional expenses of over $2.1 billion. In many cases, these costs
could have been passed on to the U.S. Government. In addition to
reporting cost avoidance, participants also reported how the
information helped keep production lines running, preserved readiness
or avoided dangerous situations. This reporting by GIDEP participants
is for the purpose of illustrating the value of sharing information
when common items have issues that could impact safety, reliability,
readiness and ownership costs.
Proper utilization of GIDEP data can materially improve the total
safety, quality and reliability of systems and components during the
acquisition and logistics phases of the life cycle and reduce costs in
the development and manufacture of complex systems and mission critical
equipment.
Examples of the value of this reporting include discovery of
counterfeiting operations that supplied parts to many defense and other
Government contractors and removal from the supply chain of--
[[Page 64682]]
Faulty rivets that could have caused military aircraft
failure in flight;
Counterfeit electronic parts that would have caused a
$100M failure of a satellite in orbit;
Counterfeit bolts securing overhead gantry cranes in a
Government industrial facility;
Counterfeit raw stock materials (aluminum, steel, and
titanium) supplied over a decade and used in structural applications
across defense and civil systems and infrastructure;
Counterfeit refrigerant with explosive properties that led
to explosions and fire on several commercial ships;
Uncertified electronic connectors that shut down large
parts of the defense and space industrial base production for 6 months
until solutions to certification could be devised.
What all these examples have in common is that the items in
question are largely commercially available common piece parts or small
assemblies that are used throughout the industrial base and in most
defense, space, and critical infrastructure programs and can easily
enter any supply stream.
In the proposed rule, the FAR Council extended coverage outside of
DoD to other Government agencies, other types of parts, and other types
of nonconformance. The FAR Council proposed this because the problem of
counterfeit and nonconforming parts extends far beyond electronic parts
and can impact the mission of all Government agencies, such as NASA and
the Department of Energy, and mission critical systems such as
avionics, satellites, space flight systems, and nuclear facilities. The
final rule still applies across all agencies and to parts other than
electronics, but there was some reassessment of costs and benefits, so
that rather than applying to all supplies, in addition to the
requirements for section 818(c)(4) with regard to electronic parts for
DoD, the rule focuses on supplies that require higher-level quality
standards or are determined to be critical items (definition added).
This and other de-scoping efforts (see preamble sections II.A. and
II.B.1.) reduced the estimated responses from 474,000 to 5,166
responses, and reduces the estimated burden hours from 1,422,000 hours
to 30,986 hours, so that information is obtained where it is most
critically needed.
A public meeting was held June 16, 2014. Public comments were
received from 14 respondents (including respondents who provided
written statements at the public meeting).
II. Discussion and Analysis
The Civilian Agency Acquisition Council and the Defense Acquisition
Regulations Council (the Councils) reviewed the comments in the
development of the final rule. A discussion of the comments and the
changes made to the rule as a result of those comments are provided as
follows.
A. Summary of Significant Changes From the Proposed Rule
1. Applicability. The final rule is significantly descoped.
It does not apply to contracts and subcontracts for the
acquisition of commercial items, including commercially available off-
the-shelf (COTS) items.
Section 818(c)(4) of the NDAA for FY 2012 will not apply
to contracts and subcontracts at or below the simplified acquisition
threshold (SAT).
Rather than applying to all supplies, in addition to the
requirements for section 818(c)(4) with regard to electronic parts for
DoD, the rule focuses on supplies that require higher-level quality
standards or are determined to be critical items (definition added).
The rule also exempts medical devices that are subject to
the Food and Drug Administration reporting requirements at 21 CFR 803;
foreign corporations or partnerships that do not have an office, place
of business, or paying agent in the United States; counterfeit, suspect
counterfeit, or nonconforming items that are the subject of an on-going
criminal investigation, unless the report is approved by the cognizant
law-enforcement agency; and nonconforming items (other than counterfeit
or suspect counterfeit items) for which it can be confirmed that the
organization where the defect was generated (e.g., original component
manufacturer, original equipment manufacturer, aftermarket
manufacturer, or distributor that alters item properties or
configuration) has not released the item to more than one customer.
Flowdown to subcontracts is similarly descoped. The
contractor is prohibited from altering the clause other than to
identify the appropriate parties.
2. Definitions. In FAR 46.101 and the FAR clause 52.246-26,
Reporting Nonconforming Items, the definition of ``quality escape'' is
deleted. A definition of ``critical item'' is added.
3. Prohibited disclosures. The FAR clause 52.246-26 states
explicitly the GIDEP policy that GIDEP reports shall not include trade
secrets or confidential commercial or financial information protected
under the Trade Secrets Act, or any other information prohibited from
disclosure by statute or regulation.
4. Timeframe for notification to the contracting officer. In
paragraph (b)(2) of FAR 52.246-26, the timeframe for contractor
notification to the contracting officer of a counterfeit or suspect
counterfeit item is revised from 30 to 60 days, for consistency with
the statute.
B. Analysis of Public Comments
1. Scope/Applicability
a. Limit Scope to Statutory Requirement, or at Least Exclude
Nonconformances
Comment: Sections 818(c)(4) and (c)(5) of the National Defense
Authorization Act (NDAA) for Fiscal Year (FY) 2012 apply to all defense
contractors and subcontractors who become aware, or have reason to
believe, that any item purchased by or for DoD may contain counterfeit
or suspect counterfeit electronic parts. The proposed rule applied the
reporting requirements Governmentwide to all supplies (not just
electronic parts) and addressed all major or critical nonconformances
as well as counterfeit or suspect counterfeit items.
Multiple respondents recommended limiting scope of the
mandatory reporting rule to the statutory requirement: Counterfeit
electronic parts and suspect counterfeit electronic parts from defense
suppliers. Some respondents thought the rule should only apply to
contractors/subcontractors covered by the cost accounting standards
(CAS). One respondent recommended that FAR Case 2013-002 be withdrawn
and a DFARS case be proposed instead. Another respondent stated that
significant research has identified the problems and risks of
counterfeit electronic part infiltration into the defense supply chain,
but is concerned whether the benefits of such broad expansion of the
scope of the rule justify the additional burdens and costs it will
impose, not just on industry, but on the Government as well.
Several respondents questioned the statutory authority for
extending requirements to contractors for items that are not
counterfeit. These respondents indicated that GIDEP reporting should be
strictly limited to counterfeit items. These respondents stated that
counterfeiting and nonconformance are two distinct problems that
require different solutions. Another respondent indicated that
expanding GIDEP reporting to include quality issues could also reduce
[[Page 64683]]
the overall effectiveness of the GIDEP system for combating
counterfeit-part proliferation and recommended ``deleting the
requirement for contractor reporting of nonconformances into GIDEP and,
instead, continuing the process of deferring to the contracting officer
to make the determination regarding which nonconformances should be
reported to GIDEP''.
Response: As stated in the preamble to the proposed rule, the
problem of counterfeit and other nonconforming parts extends far beyond
electronic parts and can impact the mission of all Government agencies.
The Councils note that, despite an erroneous statement in the preamble
to the proposed rule, the statutory requirement for reporting to GIDEP
is not limited to CAS-covered contractors and subcontractors but
applies to all defense contractors and subcontractors. By requiring
contractors to report to GIDEP counterfeit or suspect counterfeit
items, as well as common items that have a major or critical
nonconformance, the rule will reduce the risk of counterfeit items or
items with major or critical nonconformance from entering the supply
chain. Reducing the risk of potential damage to equipment, mission
failure, and even injury or death of personnel is a matter of national
security, particularly for DoD and NASA, improving operational
readiness of personnel and systems. It supports the national security
pillars of readiness, safety and reliability of systems and personnel.
The FAR Council has the authority under 40 U.S.C. 101 and 121, and 41
U.S.C. 1303, to prescribe Governmentwide procurement policies in the
FAR.
However, in response to public comments, after weighing the risks
of failure against the cost of compliance with this rule, the final
rule has significantly descoped the applicability (see FAR 46.317) of
FAR clause 52.246-26, so that it applies only to acquisition of--
Items that are subject to higher-level quality standards
in accordance with the clause at FAR 52.246-11, Higher-Level Contract
Quality Requirement;
Items that the contracting officer, in consultation with
the requiring activity, determines to be critical items (see FAR
46.101) for which use of the clause is appropriate;
Electronic parts or end items, components, parts, or
assemblies containing electronic parts, if this is an acquisition by,
or for, the Department of Defense, as provided in paragraph (c)(4) of
section 818 of the NDAA for FY 2012 (Pub. L. 112-81) that exceeds the
SAT; or
Services, if the contractor will furnish, as part of the
service, any items that meet the above-specified criteria.
The clause will not be required in contracts for the acquisition of
commercial items (see paragraph II.B.1.b.) or the acquisition of
medical devices that are subject to the Food and Drug Administration
reporting requirements at 21 CFR 803 (see paragraph II.B.5.e.).
Even if the clause is included in the contract, the contractor is
not required to submit a report to GIDEP (see FAR 52.246-26(c)) if--
The Contractor is a foreign corporation or partnership
that does not have an office, place of business, or fiscal paying agent
in the United States (see paragraph II.B.3.b.);
The contractor is aware that the counterfeit suspect
counterfeit or nonconforming item is the subject of an on-going
criminal investigation, unless the report is approved by the cognizant
law-enforcement agency (see paragraph II.B.7.b.); or
For nonconforming items (other than counterfeit or suspect
counterfeit items), it can be confirmed that the organization where the
defect was generated (e.g., original component manufacturer, original
equipment manufacturer, aftermarket manufacturer, or distributor that
alters item properties or configuration) has not released the item to
more than one customer.
b. Exclude Commercial Items, Including Commercially Available Off-the-
Shelf (COTS) Items
Comment: Multiple respondents commented that the proposed rule is
overly burdensome for commercial item providers, both prime contractors
and subcontractors. One respondent stated that application of the
regulation to commercial-item contractors is inconsistent with the
Federal Acquisition Streamlining Act of 1994 (FASA) and FAR part 12,
because the regulation is not required by statute or Executive order
and is not consistent with customary commercial practice. One
respondent commented that the proposed rule appears intended to build
on the contractor inspection systems already required by the FAR, but
that this assumption may not be reasonable for commercial item
contractors.
Response: Based on public comments the clause is no longer
prescribed for use in contracts for the acquisition of commercial items
using FAR part 12 procedures.
c. Extent of Flowdown
Comment: Several respondents opposed the mandatory flowdown of the
reporting requirement clause to all subcontractors and suppliers to all
tiers within the supply chain. One respondent suggested that even the
process of communicating its provisions to those required to comply
will be significant. Another respondent stated that the rule should not
flow down to providers of COTS items.
Response: The flowdown in the final rule has been significantly
reduced. Consistent with the criteria for application of the clause at
the prime level, the clause only flows down to subcontracts for--
Items subject to higher-level quality standards in
accordance with the clause at FAR 52.246-11, Higher-Level Contract
Quality Requirement;
Items that the contractor determines to be critical items
for which use of the clause is appropriate;
Electronic parts or end items, components, parts, or
materials containing electronic parts if the subcontract is valued at
more than the SAT, and if this is an acquisition by, or for, the
Department of Defense, as provided in paragraph (c)(4) of section 818
of the NDAA for FY 2012 (Pub. L. 112-81); or
The acquisition of services, if the subcontractor will
furnish, as part of the service, any items that meet the above-
specified criteria.
The clause does not flow down to subcontracts for--
(i) Commercial items; or
(ii) Medical devices that are subject to the Food and Drug
Administration reporting requirements at 21 CFR 803.
d. Exclude Acquisitions Below the Micro-Purchase Threshold
Comment: One respondent suggested that the way the proposed rule
was written, it is overly broad in its applicability. To mitigate this,
the respondent suggested making the reporting requirements inapplicable
to acquisitions for which the value of the acquired supplies is at or
below the micro-purchase threshold.
Response: The proposed rule was not applicable to supplies at or
below the micro-purchase level. This continues to be the case in the
final rule.
e. Exclude ``Consumable'' Supplies
Comment: One respondent was concerned that the proposed clause at
FAR 52.246-26, Reporting Nonconforming Items, will be required in all
contracts for supplies and services. Therefore, the respondent
recommended adding the word ``non-consumable'' to the texts of FAR
7.105(b)(19), 12.208, 46.102(f), 46.202-
[[Page 64684]]
1, and 46.317, hence reducing the scope and application of the rule.
Response: In response to the widespread concern that the rule was
too broad and burdensome, the application and scope of the final rule
have been significantly reduced so that it is not applicable to all
supplies and services. However, the requirements of section 818(c)(4)
of the NDAA for FY 2012 require application to all electronic parts or
end items, components or materials containing electronic parts in
acquisitions by or for DoD, (except for acquisitions of commercial
items or at or below the simplified acquisition threshold). Electronic
parts are often consumable items. Therefore, ``consumables'' cannot be
removed as a group from the final rule's reporting requirements. Class
IX consumables encompass many electrical and electronic parts,
components, and subassemblies used on today's military systems.
f. Exclude ``Suspect Counterfeit'' Items
Comment: One respondent requested elimination of the requirement to
report ``suspect counterfeit'' items from the rule if COTS items were
not excluded from the rule.
Response: The Councils have excluded COTs items from the rule, but
retained the requirement to report ``suspect counterfeit'' items within
the scope and applicability of this rule. At the time of the initial
report to GIDEP, most items are still in the category of suspect
counterfeit items and the fact that an item is suspected of being
counterfeit is useful information for the Government and industry to
have because suspect counterfeits have the potential to impact safety,
performance, and reliability and as such pose a risk.
g. Exclude ``Major Nonconformance''
Comment: One respondent indicated concern that the definition of
``major nonconformance'' includes language that could be read to reach
run-of-the-mill warranty issues. The respondent questioned what types
of nonconformances are of such significant concern as to warrant
imposition of the reporting requirement on every supplier at any tier
in the supply chain. The respondent proposed that the reporting
obligation be limited to critical nonconformances. Even if this
limitation is adopted, the respondent is still concerned that a lower-
tier supplier would not have sufficient information about the intended
use of a part to be able to determine whether a nonconformance is
``critical.''
Response: The application of the final rule is not limited to
critical nonconformances as requested by the respondents, but also
includes major nonconformances because it is difficult to draw the
distinction between a major nonconformance and a critical
nonconformance. Whether a nonconformance is major or critical depends
on the application. What constitutes only a major nonconformance for
one application may constitute a critical nonconformance for another
application. Therefore, it is important to also share the data on major
nonconformances in GIDEP. Some of the respondent's concerns may be
alleviated by the overall reduced scope of the rule, e.g., excluding
commercial items, including commercially available off-the-shelf (COTS)
items, and reducing flowdown to subcontracts (also see paragraphs
II.B.2.a. thru c.)
h. Report When Counterfeit Items Are Offered for Sale by Nonauthorized
Distributors
Comment: One respondent proposed that the GIDEP program be expanded
to allow manufacturers the ability to report instances in which
companies become aware that potentially counterfeit items are offered
for sale by nonauthorized distributors.
Response: The final rule has not been changed and the GIDEP program
has not been expanded to allow manufacturers the ability to report
instances in which they become aware that potentially counterfeit items
are offered for sale by nonauthorized distributors. The fact that a
part is provided by an unauthorized distributor may indicate that a
part is ``potentially'' counterfeit, but credible evidence (including
but not limited to visual inspection and testing) is required to
determine that a part is ``suspect counterfeit.''
i. Embedded Products, Such as Binary Code or Downloaded Apps
Comment: One respondent was concerned that DoD rules for
counterfeit and suspect counterfeit electronic parts now include
``embedded software or firmware'' within their ambit. The respondent
therefore requested clarification of the applicability of reporting on
binary code or downloaded apps that are stored in a contractor's data
system. This respondent suggested that the ability to discover flaws in
embedded ``products'' was not part of section 818 and its inclusion in
the detection and avoidance systems rules will cause gaps in the
reporting process.
Response: The concern of the respondent with regard to
applicability to embedded software or firmware is no longer a problem
because in response to comments at a public meeting held on June 16,
2014 (after the submission of this comment), the subsequent final DFARS
rule published on August 2, 2016 (81 FR 50635), under DFARS Case 2014-
D005 entitled ``Detection and Avoidance of Electronic Parts--Further
Implementation,'' removed the statement about ``embedded software or
firmware'' from the definition of ``electronic part.'' The FAR rule
does not address embedded software or firmware in the definition of
counterfeit or suspect counterfeit items.
2. Definitions
a. ``Nonconformance''
Comment: Two respondents requested more clarity as to what
constitutes nonconformance, especially in regard to electronic parts.
One respondent opined that the rule must identify what types of
``nonconformances'' are of such significant concern as to warrant
imposition of this reporting obligation on every supplier at any tier
in the Government supply chain. Without sufficient clarity regarding
what constitutes a ``major nonconformance,'' there is risk that
suppliers will err on the side of over reporting.
Response: The respondent's concern with regard to imposing the
reporting obligation on every supplier at any tier is no longer valid
because the rule no longer applies to all supplies. The clause
prescription has been revised in the final rule so that the clause will
not be included in a contract except as provided in the response in
paragraph II.B.1.a.
With regard to the meaning of the terms ``critical nonconformance''
and ``major nonconformance,'' these terms are not new to this rule, but
have been used in the FAR for many years and are commonly understood in
the quality assurance field. FAR 46.101, defines a ``critical
nonconformance'' as a nonconformance that is likely to result in
hazardous or unsafe conditions for individuals using, maintaining, or
depending upon the supplies or services; or is likely to prevent
performance of a vital agency mission. It defines a ``major
nonconformance'' to mean a nonconformance, other than critical, that is
likely to result in failure of the supplies or services, or to
materially reduce the usability of the supplies or services for their
intended purpose. As with other items, a nonconforming electronic part
is one which does not meet the requirements for its intended use.
Quality standards for electronic parts are widely understood in the
industry. No further
[[Page 64685]]
explanation of the terms has been added to the final rule.
Comment: According to one respondent, the final DFARS rule
published on May 6, 2014, defines a ``counterfeit electronic part'' as
a knowingly misrepresented part and defines a ``suspect counterfeit
electronic part'' as an item that a (presumably) higher-tier supplier
had credible evidence to believe was knowingly misrepresented by a
lower-tier supplier or the counterfeit maker. The respondent believed
that same standard, i.e., an intent to deceive, should be applied to
reporting a nonconforming item because the qualifiers to the
definitions add no substantive information to allow a supplier to adopt
a useful model to identify when a nonconforming part must be reported.
Response: The FAR definitions in the final rule were not changed in
response to this comment because the intent to deceive only applies to
counterfeit parts. The FAR proposed rule definitions of ``counterfeit
item'' and ``suspect counterfeit item'' are similar to the DFARS
definitions of ``counterfeit electronic part'' and ``suspect
counterfeit electronic part.'' The definition of ``counterfeit item,''
where misrepresentation is an element, is distinct from the definitions
of an item with a critical or major nonconformance, which do not
address misrepresentation. The nonconformance definitions purposely do
not include an ``intent to deceive'' and are based solely on whether
there is a major or critical nonconformance. It does not matter what
the contractor's intent was, but only what the quality of the item is.
Comment: One respondent stated that the criticality of
nonconformance is often application-specific and industry has no way to
determine with certainty if another contractor is using a part in a
manner that might cause a major or critical nonconformance. The
respondent believes the rule mandates that Government contractors
understand the design, relevance, and impact of nonconformance(s) on
all other systems and Government contracts.
Response: The contractor is not required to determine how a part
might be used in another application by another contractor. The rule
creates a contract clause, which will be included in appropriate
contracts requiring contractors to report under specific conditions
where the item is being used in a specific application being purchased
under the contract. No change has been made in the final rule as a
result of this comment.
b. ``Common Item''
Comment: Several respondents opined that the definition of ``common
item'' is overbroad, susceptible to many interpretations, and needs
further clarification. One respondent noted the current definition
stated that it is difficult to imagine any item (other than a one-of-a-
kind part) that would not be a ``common item.''
Response: FAR 46.203(c)(1) currently notes that a ``common item''
has multiple applications whereas, in contrast, a peculiar item has
only one application. In the proposed rule, the term was defined in the
clause at 52.246-26 to make it more prominent and easier to find, with
added examples. In the final rule, the Councils have retained the
definition in the clause, but removed the examples from the definition
of ``common item'' as they were not necessary and may have caused
confusion.
c. ``Quality Escape''
Comment: Two respondents stated that the term ``quality escape''
was broad and confusing, did not serve to clarify what would rise to
the level of being a reportable event, and may result in duplicative
reporting.
Response: Based on the comments received, the Councils have removed
the term ``quality escape'' from the rule.
d. ``Substance of the Clause''
Comment: One respondent contended that the indefinite meaning of
the phrase ``substance of this clause'' threatens to introduce enormous
complexity into already difficult negotiations between higher-tier and
lower-tier contractors regarding the scope of reporting obligations
that such lower-tier subcontractors are required to assume. Higher-tier
contractors could justifiably insist on imposing quality-control and
reporting requirements that go well beyond those specified in the
proposed clause to ensure that they fulfill their own obligations under
the clause.
Response: The Councils removed the phrase ``substance of the
clause'' and added language at paragraph (g)(3) of the clause to state
that the contractor shall not alter the clause other than to identify
the appropriate parties. In addition, the Councils revised the flowdown
language to add specificity on how the clause requirements are to be
flowed down to applicable subcontracts and listed circumstances, such
as for commercial items, where the clause would not flow down.
e. ``Becomes Aware''
Comment: One respondent noted that there is no definition of the
term ``becomes aware,'' so a standard needs to be established that
recognizes that there are many touch points in a supply chain where a
counterfeit or suspect counterfeit part could potentially be discovered
and thus potentially many points where the reporting requirement might
legitimately surface.
Response: The Councils have revised paragraph (b)(2) of the clause
to specify that written notification is required within 60 days of
``becoming aware or having reason to suspect through inspection,
testing, record review, or notification from another source (e.g.,
seller, customer, third party)'' that an item is counterfeit or suspect
counterfeit. A similar change was made in paragraph (b)(4), with regard
to notification to GIDEP.
3. Government-Industry Data Exchange Program (GIDEP)
a. Access for Contractors to Government-Only Reports
Comments: Two respondents expressed concern regarding the
Government's submission of GIDEP reports that are shared exclusively
with other Government agencies and not with industry. They are
requesting that these reports be shared with industry to improve
industry's ability to avoid and detect counterfeits.
Response: This comment did not result in a change to the final
rule, because information considered sensitive by DoD concerning
nonconforming or suspect counterfeit items may need to be temporarily
withheld from the broader GIDEP industry membership and published in
GIDEP with the distribution limited only to U.S. Government activities.
However, to minimize the impact of restricting access to this
information, DoD activities responsible for these reports are expected
to release information when deemed appropriate.
b. Access for Foreign Contractors
Comments: Several respondents expressed concern regarding the
current limits of GIDEP membership and the crucial need for their
foreign suppliers to have access to GIDEP data.
One respondent expressed concern that by not including foreign
suppliers in GIDEP that this rule would create a barrier to trade since
foreign suppliers could not comply with the GIDEP related requirements.
Response: The Councils have determined that the inclusion of
foreign contractors reporting into GIDEP would
[[Page 64686]]
be beyond the manageable scope of this rule. Therefore, the final rule
states that foreign contractors and subcontractors are not required to
submit or screen GIDEP reports. As a result, the applicability of the
rule has been further reduced.
However, it is possible for a foreign contractor or subcontractor
to work through a U.S. contractor that is a member of GIDEP and can act
as a liaison between the foreign contractor and GIDEP.
c. Capacity
Comments: One respondent questioned whether GIDEP is sufficiently
resourced to meet the demands of the increased participation that this
rule would require.
Response: In anticipation of increased participation as a result of
this rule, GIDEP has done an internal assessment of how it will handle
this increase. For the near term, GIDEP will redirect current in-house
resources and will reprioritize current workload to accommodate the
estimated demand. For the long term, GIDEP is modernizing its policies,
procedures, and information technology to increase capacity to meet
this and future needs. In addition the rule has been descoped to reduce
reporting requirements.
d. Search Capability And Screening
Comments: One respondent expressed concern with the GIDEP search
capability to identify all suspect counterfeit reports in the GIDEP
database based on a specific identifier. Request was made for GIDEP to
provide a specific data field to be included in all suspect counterfeit
reports that would serve as a unique identifier to facilitate the
search process.
One respondent opined that reviewing, or screening, of GIDEP
reports for suspect counterfeit electronic parts by contractors and
Government is often geared ``not to find'' affected parts, stating if
only the exact part number and lot/date code is checked for impact,
there is little chance of detecting all counterfeit parts. The
respondent suggested the rule be revised to instruct contractors to
screen for similar parts purchased or installed from the named
supplier.
Response: The search capability of GIDEP is outside the scope of
this rule and no change to the rule has been made. It should be noted
that GIDEP search capability, although dated, is very powerful and
accesses a fully indexed database. GIDEP members are able to perform
searches based on simple keywords, phrases, or on specific discrete
fields such as manufacturer, part number, and supplier. GIDEP also
provides a service for its members called Batch Match. A GIDEP member
can provide a list of parts, which GIDEP will use to automatically
search the database for an exact match to any reference that meets the
provided criteria. If an applicable document is found, the member is
provided with a list of document references. This matching can be
performed one time or on an ongoing daily basis.
e. Reporting
i. Guidance To Limit Duplicative Reports, i.e., Who in the Supply Chain
Reports
Comments: Several respondents expressed concern that the proposed
rule as written would require multiple parties in the same supply chain
to create duplicate reports of the same counterfeit, suspect
counterfeit or nonconforming part discovery.
One respondent recommended that the reporting obligation be imposed
upon only the organization that delivered the nonconforming item, not
the entity or entities that received the nonconforming item. Another
respondent recommended that the first point in time in the supply chain
where ``actual knowledge'' can be established may be the proper point
for disclosure and reporting to GIDEP.
Response: The organization that becomes aware or has reason to
suspect, such as through inspection, testing, record review, or
notification from another source (e.g., seller, customer, third party),
that an item purchased by the contractor for delivery to, or for, the
Government is counterfeit or suspect counterfeit, or that a common item
has a major or critical nonconformance, is responsible for ensuring a
GIDEP report is prepared and submitted. Duplicative nonconformance or
counterfeit reports in GIDEP are defined as events that have the same
part number, manufacturer, or supplier, the same lot or date code, and
same technical facts. To save resources in the dispositioning of
duplicate reports any event deemed to be a duplicate of a previously
reported incident will be referenced in the ``Comment'' area of the
GIDEP report. Events involving the same part number and manufacturer
that had previously been reported to GIDEP may be documented with a new
GIDEP report having a reference to that earlier report so that GIDEP
users may reevaluate the disposition previously taken. This type of
documentation also provides opportunities for Federal agencies to
better understand issues within their supply chains. No changes were
made to the final rule as a result of this comment.
ii. Inaccurate or False Reports
Comments: Several respondents stated the need to ensure that any
inaccurate or improper information is corrected or removed from the
GIDEP reports.
Response: The mechanics of how GIDEP corrects or removes inaccurate
reports is outside the scope of this rule and no change to the rule has
been made. Once a report is submitted to GIDEP and entered into the
database so that it is visible to the GIDEP community it becomes a
permanent record in the GIDEP information system. Once the record is
visible to the community, users begin to make decisions and take action
based on the report's content. In order to facilitate its use, the
report becomes a historical record that can be referenced for as long
and as frequently as needed. If an error or an inaccuracy is discovered
the originator of the document can correct it through the use of an
amendment record. The amendment is displayed with the original record
and is made part of the document's history. This way, the most current
and accurate information is made available and preserved for the GIDEP
community's use.
iii. Nonconformance Reports
Comments: Two respondents expressed ``uncertainty about when the
60-day clock starts running'' for submitting GIDEP reports. The
respondents questioned whether nonconforming items are to be reported
immediately, or only after failure analysis is performed by the
manufacturer. Another respondent recommended that the ``Government
maintain current GIDEP reporting requirements for key information to
include in nonconformance reports.''
Response: The final rule has modified the proposed rule to state
that the contractor shall submit a report to GIDEP within 60 days of
``becoming aware or having reason to suspect, such as through
inspection, testing, record review, or notification from another source
(e.g., seller, customer, third party) that an item purchased by the
contractor for delivery to, or for, the Government is ``counterfeit or
suspect counterfeit item'' or ``a common item that has a major or
critical nonconformance''. The 60-day period begins when the contractor
first becomes aware or has reason to suspect that an item is a
counterfeit or suspect counterfeit item or has a major or critical
nonconformance.
[[Page 64687]]
iv. Reports to Contracting Officer Versus Reports to GIDEP
Comments: Several respondents expressed concern about the creation
of dual and duplicate reporting requirements, i.e., reporting
counterfeit or suspect counterfeit parts to the contracting officer as
well as to GIDEP. One respondent recommended that the rule only address
GIDEP reporting. One respondent stated that the rule gives no guidance
on what information is to be provided to the contracting officer. The
respondent asked whether a copy of the GIDEP form would suffice.
Another respondent requested further clarification on the rationale for
the dual reporting with regard to counterfeit or suspect counterfeit
parts.
Response: In the proposed rule, paragraph (b)(2) of the clause at
FAR 52.246-26 required the contractor to report counterfeit or suspect
counterfeit items to the contracting officer. This requirement has been
retained in the final rule because section 818(c)(4) requires
contractors and subcontractors to report counterfeit or suspect
counterfeit electronic parts to ``appropriate Government authorities
and the Government-Industry Data Exchange Program.'' The contracting
officer needs to be aware of issues that arise on the contract. With
regard to content of the report, a copy of the GIDEP report would
suffice.
v. Automatic Bulletins
Comments: One respondent recommended that ``GIDEP should be
configured to automatically issue bulletins to industry when reports
are input into the system in order to provide the maximum opportunity
for contractors to reduce the real-time risk of counterfeit, suspect
counterfeit or nonconforming items entering the supply chain.''
Response: This is outside the scope of this rule and no change to
the rule has been made. However, GIDEP provides a number of ways to
inform industry of recently published reports:
A Batch Match service allows users to load their parts
into GIDEP and to be informed via email whenever new published reports
may impact their parts.
Weekly report summaries and part numbers are pushed out to
industry via email links.
A daily XML feed of data tailored to meet industry's
specific data requirements is also available.
GIDEP training emphasizes the capabilities of the various
notifications systems available to industry.
vi. Instructions, Training, and Assistance
Comment: One respondent requested clarification as to how GIDEP
reporting for counterfeit and suspect counterfeit electronic parts will
work. Several respondents expressed concern that many contractors do
not currently use the GIDEP database and will not be familiar with how
to report to GIDEP.
Response: The operation of GIDEP is outside the scope of this rule
and no change to the rule has been made. However, it should be noted,
to better understand how GIDEP reporting works and become familiar with
how to report to GIDEP, support is provided in a variety of ways to
assist users.
Instructions: To assist GIDEP users in submitting suspect
counterfeit reports, Chapter 7 of the GIDEP Operations Manual ``Failure
Experience Data'' provides detailed instructions on how to complete a
suspect counterfeit report. Appendix E ``Instruction for Reporting
Suspect Counterfeit Parts'' provides detailed instructions on
completing each field of the GIDEP Forms 97-1 and 97-2. Chapter 7 is
available for download from the GIDEP public website.
Training:
Various GIDEP instructional modules are provided as online
web-based training.
Training clinics are held where GIDEP members can attend
to get personal hands-on training by GIDEP Operations Center personnel.
Quarterly classroom training is held at the GIDEP
Operations Center.
Training is also available remotely through web-
conferencing.
Help Desk: For the day-to-day issues and questions that may come
up, the GIDEP Operations Center has a Help Desk.
f. Contractor Responses to Reports
Comments: One respondent expressed the need for industry to be able
to provide feedback to GIDEP Reports.
Response: The operation of GIDEP is outside the scope of this rule
and no change to the rule has been made. However, it is the standard
GIDEP process for suppliers and/or manufacturers named in GIDEP reports
to be given 15 working days to provide their response. Their response
is then included in the release of the GIDEP report. If anyone should
take issue with a report or believe they have additional information
regarding a given report, they are free to discuss their information
with the original submitter who, in turn, can amend their submitted
report if they believe it is warranted. The GIDEP database also allows
for the capture of individual GIDEP member comments in the comment
field associated with each report.
4. Potential Adverse Impact
a. Increased Costs May Outweigh Benefits
Comment: Several respondents were concerned that the expansion of
the statutorily mandated reporting and review requirements creates an
unnecessary burden on industry that will result in increased costs to
the Government with benefits unlikely to outweigh those increased
costs. One respondent stated that the added compliance burdens will
likely make future contracting opportunities cost-prohibitive for
businesses of all sizes. Several respondents were concerned that the
significant burden of the proposed rule may dissuade new companies
(both prime and subcontractors) from entering the public sector market
or cause companies to remove themselves from the Federal market place.
Particularly commercial and COTS suppliers at the lower-tier may choose
to exit the market.
Response: The final rule has been significantly descoped, including
removal of applicability of FAR 52.246-26 to commercial prime contracts
and exclusion of flowdown to subcontracts for commercial items. In
addition, the rule no longer applies to all supplies. (See response in
paragraph II.B.1.a.).
Furthermore, the information collected during normal quality
assurance inspection, testing, record review, or notification from
another source (e.g., seller, customer, third party) is the information
that is needed for a GIDEP report. Therefore, no changes are required
to existing quality-assurance systems. In fact, the information
required is a subset of that collected for the quality assurance
contract compliance efforts and so only excerpts from the Quality
Assurance system report are needed in the GIDEP report. The benefits of
sharing this information will be the reduction of risks presented by
counterfeit and nonconforming items in the supply chain. In turn, this
will protect mission critical items and avoid failures impacting
national security.
b. Expanded Acquisition Planning Requirements
Comment: One respondent was concerned by the expanded acquisition
planning requirements proposed at FAR 7.105(b)(19). According to the
respondent, there are multiple quality standards in various sectors of
the
[[Page 64688]]
marketplace and, in still others, there are no standards at all. If
this rule were to apply only to major systems, it might be possible to
identify the standards in the various industry sectors involved, but
this would require a number of levels of expertise that individual
acquisition shops may not possess. The respondents foresee that the
Government will face challenges in implementation.
Response: The final rule has amended the proposed text at FAR
7.105(b)(19), since the rule no longer applies to all supplies or
service contracts that include supplies. The final rule requires that
the acquisition plan address whether high-level quality standards are
necessary in accordance with FAR 46.202, and whether the supplies to be
acquired are critical items in accordance with FAR 46.101, rather than
requiring that the acquisition plan address for all supplies ``the
risk-based Government quality assurance measures in place to identify
and control major and critical nonconformances''.
c. Civil Liability
Comment: Various respondents commented on the ``safe harbor'' from
civil liability that may arise as a result of reporting to GIDEP,
provided that the contractor made a reasonable effort to determine that
the items contained counterfeit electronic parts or suspect counterfeit
electronic parts. This safe harbor in the proposed rule is provided by
section 818(c)(5) of the NDAA for FY 2012, applicable only to contracts
awarded by or for the Department of Defense, and only applicable to
reporting of counterfeit electronic parts or suspect counterfeit
electronic parts.
Several respondents supported the safe harbor provisions, but had
some concern that it may encourage contractors to err on the side of
reporting to GIDEP, rather than analyzing whether the nonconformance is
a critical or major nonconformance, and whether the nonconformance is
genuine.
Some respondents, expressed concern that expanding the rule beyond
the original Congressional intent leaves industry open to significant
civil liability, which Congress could not have intended. According to
two respondents, the rule should not be extended beyond the original
statutory scope until Congress provides safe harbor for the expanded
scope of the rule. Some respondents recommended that the rule should
afford civil immunity to all contractors covered by the rule, or even
legal indemnification.
According to one respondent, lack of safe harbor may disincentivize
contractors from reporting. Several other respondents were concerned
that, absent safe harbor provisions for authorized supply chains, the
Government may find its access to authorized sellers limited.
Response: With regard to concern that contractors or subcontractors
will be ``erring on the side of reporting to GIDEP'' because of
protection against civil liability, the contractor or subcontractor is
only exempted from civil liability provided that the contractor or
subcontractor ``made a reasonable effort to determine that the report
was factual.''
Section 818(c)(5) of the NDAA for FY 2012 is limited by its
language to immunity from civil liability to defense contractors and
subcontractors, only with regard to reporting of counterfeit or suspect
counterfeit electronic parts. It does not provide a legal basis to hold
civilian agency contractors immune from civil liability in accordance
with the plain language of the statute. Immunity is an exemption from
liability that is granted by law to a person or class of persons. There
has to be a legal basis to release a contractor from liability either
under the contract, pursuant to a statute, or in accordance with common
law. Granting an immunity from liability is achieved by law--either by
the legislature pursuant to statute, or by the courts under common law
(e.g., a common law defense to a lawsuit that the contractor asserts
before the courts), or in accordance with contract terms and
conditions. The FAR Council is not authorized to expand the statutory
liability provisions (in this case immunity from civil liability)
beyond the statutory language, or to include indemnification.
Therefore, there were no changes from the proposed rule as a result of
these comments.
d. De Facto Debarment or Suspension
Comment: One respondent was concerned that reporting of contractors
and subcontractors may include reporting of third-party items. The
respondent is concerned that the entity whose item is reported to GIDEP
is effectively debarred or suspended from Government contracting unless
and until cleared.
Response: The focus of suspension and debarment is on the
responsibility of the contractor or subcontractor. The focus of GIDEP
is on the conformance of a part, which may or may not reflect badly on
the contractor or subcontractor. Before a report is submitted to GIDEP
for publication, the manufacturer of the item or the supplier of the
suspect counterfeit part is given the opportunity to provide their
perspective on the issues presented in the report. Often, the
information presented includes how the part manufacturer is being
improved to resolve the concerns or how the supplier who provided the
suspect counterfeit part is improving their quality assurance processes
or procurement practices. Most GIDEP reports provide an opportunity for
a positive perception of the entity. There were no changes from the
proposed rule as a result of this comment.
5. Conflicts or Redundancies
a. Mandatory Disclosure Requirements at FAR 52.203-13
Comment: Several respondents were concerned about differentiation
between expanded GIDEP reporting and mandatory disclosure under FAR
clause 52.203-13. One respondent stated that it is their understanding
that the DoD Inspector General (DoDIG) Office of Contract Disclosure
has taken the position that contractors are obliged to report ``any
discovery of counterfeit electronic parts and non-conforming parts.''
This respondent noted that if the FAR clause is in the contract and if
they find credible evidence of fraud committed somewhere in the supply
chain, they would report it to the DoDIG via the contract disclosure
process. However, it is not clear to the respondent that when these
conditions are not present, that they must still report to the DoDIG.
One respondent asked for clarification of the obligation of contractors
under the contemplated expanded reporting requirement and the
requirement at FAR 52.203-13. Another respondent requested that the FAR
Council ``expressly state that any reporting required under the rule
does not implicate or trigger any requirements to notify the IG under .
. . FAR part 3.10.'' Two respondents cited to the DoD statement in the
preamble to the final DFARS rule for DFARS case 2012-D055 that the
mandatory disclosure process suggests that the contractor has committed
an ethical code of conduct violation, whereas the GIDEP reporting is
not meant to imply a violation of this nature.
Response: Counterfeit or suspect counterfeit parts, by definition,
probably involve fraud at some tier of the supply chain. The evidence
that led to the conclusion that the part was counterfeit or suspect
counterfeit should provide the credible evidence required by FAR
52.203-13 that would require disclosure to the IG. Nonconforming parts,
on the other hand, do not necessarily involve the fraud or other
criminal violations or
[[Page 64689]]
civil false claims violations listed at FAR 52.203-13, and therefore
may, but do not necessarily, trigger the disclosure requirement under
FAR 52.203-13.
The fact that the clause is not in the contract may relieve the
contractor from the specific requirement to report the credible
evidence of fraud to the IG. However, although the clause at FAR
52.203-13 is only included in contracts in accordance with the clause
prescription at FAR 3.1004, the requirements at FAR 3.1003(a)(2) state
that, whether or not the clause is applicable, a contractor may be
suspended and/or debarred for knowing failure to timely disclose to the
Government, in connection with the award, performance, or closeout of a
Government contract performed by the contractor or a subcontract award
thereunder, credible evidence of a violation of Federal criminal law
involving fraud or a violation of the Civil False Claims Act.
Although the mandatory disclosure under FAR 52.203-13 indicates an
ethical code of conduct violation at some tier by some entity, that
does not equate to an ethical violation by the contractor that is
reporting the violation. Therefore, there was no change from the
proposed rule as a result of these public comments.
b. FAR Part 46 Quality Assurance Conflicts or Redundancies
Comment: Two respondents expressed concerns that the additional
reporting is redundant and extending reporting to other areas
duplicates controls already in place. One respondent stated that
contractors are already required to report uncorrected nonconformances.
Response: While quality management systems standards require
reporting of nonconformances in some instances, GIDEP reporting is not
redundant because the GIDEP reporting is to the larger acquisition
community thereby providing other acquisition activities an opportunity
to mitigate disruptions caused by suspect and known counterfeit items.
FAR part 46 and the Quality Management Systems Standards require
reporting to the customer only. Therefore, there was no change from the
proposed rule as a result of these public comments.
c. DI-MISC-81832, Data Item Description: Counterfeit Prevention Plan
(21 Jan 2011) Issued by National Reconnaissance Office (NRO)
Comment: One respondent stated that the proposed rule is in
conflict with Data Item Description, DI-MISC-81832 COUNTERFEIT
PREVENTION PLAN (21 JAN 2011). The contractor is not required by the
DID to notify the suppliers that the items are suspect counterfeit.
Response: The clause does not require the contractor to notify the
suppliers. It requires reporting to the contracting officer and GIDEP.
Therefore, there was no change from the proposed rule as a result of
these public comments.
d. GIDEP Failure Experience Data (FED) Operations Manual
i. Notifying More Than One Customer on Single-Use Item
Comment: One respondent noted that the proposed rule is in conflict
with the GIDEP Operating Manual. The respondent stated that the GIDEP
Operating Manual does not require reporting of items ``acquired for a
specific application or use, and known not to be used by anyone else,''
whereas the rule conflicts with this.
Response: The GIDEP Operations Manual does not conflict with either
the proposed or the final rule. The rule requires reporting of major or
critical nonconformances to GIDEP only for ``common items,'' which term
is defined at FAR 46.101 to mean an item that has multiple applications
versus a single or peculiar application. The Operations Manual states
``Items and services uniquely acquired for a specific application or
use, and known not to be used by anyone else, will not be reported
through GIDEP. If you are unsure whether the item may be similar to one
used for another application modified only by the color or slight
change of form or fit, you should report the nonconforming item or
service using the applicable form.''
If parts are procured from sources open to or available to the
broader industrial base, then it is likely others have procured the
same part and it should be reported.
ii. GIDEP Community Collaboration
Comment: Two respondents stated that the GIDEP manual already
contains a reporting process that many involved with Federal
contracting already use. One respondent does not support changes to the
reporting process documented in the manual. According to the
respondent: ``All enhancements and changes to reporting requirements
should be implemented through the GIDEP membership community where
Government and industry advisory groups collaborate, pilot, and execute
reporting requirement changes.''
Response: This FAR rule is not changing the GIDEP process. In some
instances the rule now requires mandatory reporting, rather than
voluntary reporting, but does not change how to report. No change from
the proposed rule is required as a result of these comments.
e. Food and Drug Administration MedWatch Database
Comment: One respondent stated that the intent of the rule is for
information to be exchanged among agencies about nonconformance. This
goal is served by the Food and Drug Administration MedWatch database
for products regulated by the Food and Drug Administration that present
a risk to health.
Response: The final rule no longer applies to acquisition of items
reported in the Food and Drug Administration's MedWatch database due to
the change to the clause prescription at 46.317(b)(2) and the change to
the clause flowdown at 52.246-26(g)(2)(ii).
6. Safeguards
a. Proprietary Data Under Trade Secrets Act
Comments: One respondent expressed concern whether adequate
measures and processes are in place to ensure that proprietary data or
information protected under the Trade Secrets Act shall not be
reported.
Response: It is GIDEP policy that submitted reports should not
contain proprietary data. To make this prohibition explicit, the final
rule adds a new paragraph (d) to the clause at FAR 52.246-26, which
states that submitted reports are not to include ``trade secrets or
confidential commercial or financial information protected under the
Trade Secrets Act.'' It is the practice of GIDEP that all GIDEP reports
are screened upon receipt for information labelled as proprietary data
or information protected under the Trade Secrets Act. If this data is
found, it is brought to the attention of the submitter. If the
submitter of the report is insistent upon including the proprietary
data, a written release is obtained.
b. Impact on Ongoing Criminal Investigation
Comments: One respondent recommended that the proposed rule should
provide ``clear guidance as to when a report should not be made if a
criminal investigation is in-process and reporting could impact such
investigation.''
Response: The final rule has been modified at FAR 52.246-26(c)(2)
to add the statement that a GIDEP report should not be submitted when
the contractor is aware that the issue it is reporting is being
investigated unless
[[Page 64690]]
the report has been approved by the cognizant law enforcement agency.
c. Export-Controlled Data
Comments: One respondent expressed concern whether adequate
measures and processes are in place to ensure that ``export controlled
data is not inadvertently released to unauthorized parties.''
Response: The final rule revised the clause at 52.246-26(b)(1) and
(c)(1) to clarify that the GIDEP reporting and screening requirement
does not apply if the contractor is a foreign corporation or
partnership that does not have an office, place of business, or fiscal
paying agent in the United States. Since foreign corporations will not
be allowed to screen or submit GIDEP reports, export-controlled data
will not be inadvertently released to unauthorized parties as a result
of this rule. Further, when applying for access to GIDEP, all
applicants are required to agree to the GIDEP Operations Manual,
Chapter 2, Appendix A, ``GIDEP Terms and Conditions'' that include the
following--``Safeguard GIDEP data in accordance with the Security and
Technology Transfer regulations of the U.S. and Canadian Governments.
The U.S. regulations are located at 15 CFR chapter VII, subchapter C
``Export Administration Regulations''. For example, these regulations
include rules covering access by and disclosure to foreign nationals
employed at the businesses within the United States or Canada.
7. Additional Guidance
a. Disposition of Counterfeit Parts
Comments: One respondent recommended that the Government establish
and communicate--
(1) An official position about what a recipient of suspect/actual
counterfeit parts should do with the material when it discovers/
determines that it may be counterfeit;
(2) Procedures the Government would prefer industry follow in
securing suspect counterfeit electronic parts and preserve the chain of
custody; and
(3) Guidance addressing how long after a company notifies the
Government of its conclusion that industry should retain suspect
counterfeit electronic parts.
Response: FAR 46.407(h) provides that the contracting officer shall
provide disposition instructions for counterfeit or suspect counterfeit
items in accordance with agency policy. Agency policy may require the
contracting officer to direct the contractor to retain such items for
investigative or evidentiary purposes. Also, FAR 52.246-26(b)(3)
directs the contractor to retain counterfeit or suspect counterfeit
items in its possession at the time of discovery until disposition
instructions have been provided by the contracting officer. Therefore,
no changes from the proposed rule are required.
b. Law Enforcement Lead
Comments: One respondent noted that industry would prefer a single
Federal law enforcement agency as a point of contact for questions,
understanding best practices, referrals, etc. Industry would look to
this agency for purposes of reporting and investigation of events such
as discovery of counterfeit electronic parts and recommended that GIDEP
be the mechanism by which notification to such law enforcement is
conducted.
Response: This recommendation is outside the scope of this case and
no change is made to the final rule.
c. Cooperation Between Original Component Manufacturers (OCMs) and
Contractors
Comments: One respondent addressed difficulties with obtaining
sufficient information from the OCM to suspect an item is counterfeit.
The respondent indicated that industry benefits, under certain
circumstances, from attempting to authenticate electronic parts
procured from other than ``trusted suppliers'' when the OCM cooperates.
Such circumstances include--
(1) The parts in question are electronic components for items
contained in fielded systems previously sold to the Government years
earlier and are now needed to support replacement or additional
requirements for those same systems;
(2) The OCM no longer manufactures the part in question;
(3) Neither the OCM nor its authorized distributors have the part
in stock; and
(4) There is not enough time or inventory to engage authorized
aftermarket manufacturers.
According to the respondent, OCMs occasionally refuse to verify
such information as lot number, date code, and trademark of suspect
counterfeit parts citing that (1) the reporting company did not
purchase the part in question from the OCM; (2) taking time to assess
the part costs the OCM money; and (3) the risk to the OCM involved in
terms of liability to the seller of the part if the OCM's input to the
reporting company is incorrect. The respondent recommended that the
Government allow industry to bring its requests for such information
from OCMs to Federal law enforcement to obtain the information from the
OCM or encourage OCMs to cooperate with industry in the collective
public good.
Response: It is outside the scope of this case and the authority of
the Councils to require OCMs to provide information to another entity
with regard to suspect counterfeit parts; therefore, no change is made
to the final rule.
8. Technical Corrections/Comments
Comment: According to one respondent, the FAR text should reference
12.301(d)(5) rather than 12.301(d)(4) for the requirement to include
the clause FAR 52.246-26, Reporting Nonconforming Items.
Response: The respondent is correct. However, this issue is no
longer relevant, as this clause is no longer required for acquisitions
of commercial items.
Comment: One respondent commented that if the proposed rule is
intended to require flowing down FAR 52.246-26 to commercial-item
subcontracts awarded under commercial-item prime contracts, then the
FAR Council should propose corresponding amendments to FAR 52.212-5(e).
Response: The respondent is technically correct. However, the final
rule no longer applies to contracts for the acquisition of commercial
items using FAR part 12 procedures, nor does the rule flow down to
subcontracts for commercial items.
Comment: One respondent stated that the proposed rule and clause
use the term ``contractor'' at some points and ``Contractor'' at other
points.
Response: In accordance with FAR drafting conventions, the term
``contractor'' is not capitalized in the FAR text, but in a clause it
is capitalized to indicate the prime contractor.
9. Phased Implementation
a. Adequate Time To Develop Practices, Processes, and Tools
Comment: One respondent proposed a phased implementation approach
to allow adequate time for the supply base to develop practices,
processes, and tools to comply with the requirements. This would allow
for system access and training needs of companies newly reporting in
GIDEP and for existing participants' to establish internal protocols to
ensure accurate, timely and complete GIDEP reporting.
Response: The Councils do not agree that a phased implementation
approach is necessary and no change is made to the final rule. The
GIDEP system is well
[[Page 64691]]
established and support is provided in a variety of ways to assist
users. Instructions are provided in the GIDEP Operations Manual found
on the GIDEP website, along with information on instructional modules
and web-based training. Additionally, the GIDEP Operations Center has a
Help Desk to assist users. These tools will assist with compliance and
reduce the need to develop extensive practices, processes, and internal
protocols.
b. Limit Reporting Requirement
Comment: Two respondents proposed a phased-in approach initially
limited to reporting counterfeit and suspected counterfeit parts and
only later expanded once the processes for implementing such systems
are established and functioning.
Response: Because the final rule has been significantly descoped
there is no need for a phased-in approach and no change was made to the
rule concerning a phased-in approach.
c. Expanded Access to GIDEP
Comment: One respondent proposed the FAR Council delay
implementation of the rule or make GIDEP participation voluntary until
access to GIDEP is more broadly available, specifically to non-U.S. and
non-Canadian companies who do not presently have access to the system.
Response: The final rule does not extend access to foreign
contractors. It has been determined that the inclusion of foreign
contractors would be beyond the manageable scope of this rule.
Therefore, the final rule adds the statement in paragraphs (b)(1) and
(c)(1) of the clause at 52.246-26 that foreign contractors are not
required to submit or screen GIDEP reports.
d. Commercial Item Contractors' Exemption
Comment: One respondent proposes to exempt commercial item
contractors, their subcontractors and suppliers from the initial
applicability of the rule.
Response: The final rule was revised to no longer apply to
acquisition of commercial items and does not require flowdown to
subcontracts for the acquisition of commercial items.
10. ``Major Rule'' Under 5 U.S.C. 804
Comment: One respondent disagreed with the statement in the
preamble to the proposed that this is not a major rule under 5 U.S.C.
804. The respondent cites the value of current industry investments to
secure supply chains and ensure product integrity, increased costs to
the Government customer for compliance, and the additional liability
costs imposed on the Government industrial base and information and
communication technology sectors.
Response: It is not the decision of the FAR Council whether a rule
is a major rule, but it is, by the definition at 5 U.S.C. 804, the
decision of the Office of Information and Regulatory Affairs (OIRA).
OIRA determined that the proposed rule was not a major rule. This final
rule has significantly less effect than the proposed rule (e.g.,
estimated burden hours reduced from 1,422,000 to 30,966 hours), so is
even less likely to be considered a major rule. As defined in 5 U.S.C.
804, ``major rule'' means any rule that the Administrator of the Office
of Information and Regulatory Affairs of the Office of Management and
Budget finds has resulted in or is likely to result in--
(A) An annual effect on the economy of $100,000,000 or more;
(B) A major increase in costs or prices for consumers, individual
industries, Federal, State, or local government agencies, or geographic
regions; or
(C) Significant adverse effects on competition, employment,
investment, productivity, innovation, or on the ability of United
States-based enterprises to compete with foreign-based enterprises in
domestic and export markets.
Quality assurance systems already have methods of analyzing and
dealing with nonconformances; therefore, the bulk of the process in
gathering information on nonconforming parts is already happening
(e.g., FAR 52.246-2, Inspection of Supplies--Fixed Price; or 52.246-3,
Inspection of Supplies--Cost-Reimbursement).
11. Small Business Impact
Comment: One respondent asserted the analysis of the costs and
impacts of the proposed rule are greatly underestimated and that small
businesses most assuredly will be impacted as the proposed rule
requires a system for ongoing review of GIDEP, audit, investigation,
and reporting; and investigation and reporting to GIDEP and the
contracting officer. The respondent pointed out that small businesses
have limited resources--both in terms of personnel and financial
resources--to establish systems necessary to engage in these kinds of
continuous monitoring, auditing, investigating, and reporting
activities.
Another respondent stated that, although the proposed rule
addresses an important objective--to mitigate the threat that
counterfeit items pose when used in systems vital to an agency's
mission--the rule imposes significant new monitoring and reporting
requirements that will pose particular challenges for small businesses.
The respondent stated that the proposed rule was likely to increase
costs for smaller businesses. The respondent cited examples, such as by
requiring them to significantly increase quality assurance and
compliance investments in order to remain at some tier in the
Government supply chain, increasing liability costs associated with
compliance failures, and increasing costs associated with the
heightened risk of application of the exclusionary authority. This
respondent also opined that in the section 818 regulatory process, the
rulemakings have had the net effect of higher-tiered Federal
contractors trimming their supply chains to eliminate companies unable
or unwilling to implement flowdown policies or that cannot immediately
demonstrate well in advance of entering supplier agreements that they
have the capabilities demanded by the various section 818 rules.
Ultimately, the by-product of this and other section 818 rulemakings is
that they disproportionately and negatively impact small businesses
through reduced participation in the Federal market and reduced Federal
funding.
Response: The significant descoping of the applicability of this
rule both at the prime and subcontract level, including removal of the
applicability of the clause to commercial prime contracts, and removal
of the flowdown requirements to subcontracts for commercial items (see
paragraphs II.B.1.a. through II.B.1.c.) will greatly reduce the impact
on small businesses. Additionally, the rule does not require
application of section 818(c)(4) to DoD contracts and subcontracts that
do not exceed the SAT. Furthermore, while this rule may require small
businesses to implement new business practices, these practices will
have the beneficial effect of making the business more competitive as
potential prime contractors and business partners see the firm has
instituted practices to avoid passing on counterfeits and items with
major or critical nonconformances.
The Councils have revised the rule to lessen burden and reduced
reporting requirements to the maximum extent while still getting
information necessary to protect items that require higher-level
quality standards, critical items, and electronic parts for DOD from
counterfeit parts and major or critical nonconformances. Changes to the
rule include: Focusing on supplies that require higher-level quality
standards or are determined to be critical items, excluding foreign
contractors and commercial items. Commercial items
[[Page 64692]]
include COTS items. This and other descoping efforts (see preamble
sections II.A. and II.B.1.) reduced the estimated responses from
474,000 to 5,166 responses, and reduces the estimated burden hours from
1,422,000 hours to 30,986 hours, so that information is obtained where
it is most critically needed.
Comment: One respondent was concerned that adding negotiations over
quality assurance may further distort the playing field to hurt small
businesses attempting to retain a degree of control in their operations
when negotiating with prime contractors. Conversely, lower-tier
subcontractors, particularly commercial item contractors and small
business entities, may assert that they do not have (and cannot afford
to have) the sophisticated internal control systems necessary to detect
and categorize the types of nonconforming conditions that require
reporting to GIDEP. Neither the proposed clause nor the proposed
regulation offers any guidance for resolving such conflicts.
Response: Part of the concern of the respondent was that higher-
tier contractors could insist on imposing quality control and reporting
requirements that go well beyond those specified in the proposed clause
to ensure that they fulfill their own obligation under the clause. In
the final rule, paragraph (g)(3) of the clause at 52.246-26 revises the
flowdown language to restrict changes to the clause (see paragraph
II.B.2.d.).
12. Information Collection Requirements
Comment: Various respondents commented on the estimate of the
information collection requirement in the preamble to the proposed
rule.
Several respondents stated that the burden is currently
underestimated. According to a respondent, the estimate of 474,000
reports underestimates the potential burden of the expanded reporting
requirements because it failed to account for the growth in GIDEP
reporting entities and relies on the number of companies currently
participating in GIDEP.
Various respondents commented that 3 hours per report was
substantially underestimated. One respondent noted that any incident
must be identified, investigated, and reported. Procedures need to be
followed, individuals with expertise need to be consulted, tests need
to be performed and reports to memorialize findings of the review need
to be prepared and filed. Another respondent noted that a single report
can take up to 100 hours to complete, including significant legal
review. Another respondent commented that the ``very low estimate''
seems to ignore the significant time and costs associated with
training, implementation, and the risks of liability.
Response: DoD, GSA, and NASA have completely revised the estimated
number of reports per year because the rule has been significantly
descoped and data was also reviewed regarding the current number of
participating contractors and the current number of reports submitted,
resulting in an estimate of 51,657 participating contractors submitting
5,166 reports per year.
Industry already has all the information necessary to prepare a
GIDEP report, based on existing quality assurance systems and
procedures. However, in response to the industry comments and after
discussions with subject matter experts, DoD, GSA, and NASA have
reconsidered the number of estimated hours to prepare, review, and
submit the report at an average of 6 hours per report (see section VII
of this preamble).
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Items, Including Commercially
Available Off-the-Shelf (COTS) Items
A. Applicability to Contracts at or Below the SAT
41 U.S.C. 1905 governs the applicability of laws to contracts or
subcontracts in amounts not greater than the SAT. It is intended to
limit the applicability of laws to such contracts or subcontracts. 41
U.S.C. 1905 provides that if a provision of law contains criminal or
civil penalties, or if the FAR Council, which includes DoD, makes a
written determination that it is not in the best interest of the
Federal Government to exempt contracts or subcontracts at or below the
SAT, the law will apply to them. The FAR Council has not made this
determination. Therefore, section 818(c)(4) of Public Law 112-81 will
not be applied below the SAT at either the prime or subcontract level.
However, the Governmentwide policy, which is not required by statute,
with regard to items that require higher level quality standards and
critical items (including electronic parts), will be applied below the
SAT, because for such parts, counterfeit or nonconforming parts of any
dollar value can still cause hazardous or unsafe conditions for
individual using the equipment and can lead to mission failure.
B. Applicability to Contracts for the Acquisition of Commercial Items,
Including COTS Items
41 U.S.C. 1906 governs the applicability of laws to contracts and
subcontracts for the acquisition of commercial items, and is intended
to limit the applicability of laws to contracts and subcontracts for
the acquisition of commercial items. 41 U.S.C. 1906 provides that if a
provision of law contains criminal or civil penalties, or if the FAR
Council makes a written determination that it is not in the best
interest of the Federal Government to exempt commercial item contracts,
the provision of law will apply to contracts for the acquisition of
commercial items.
Likewise, 41 U.S.C. 1907 governs the applicability of laws to the
acquisition of COTS items, with the Administrator for Federal
Procurement Policy serving as the decision authority in determining
whether it is not in the best interest of the Government to exempt
contracts for COTS items from a provision of law.
The FAR Council and the Administrator for Federal Procurement
Policy have not made these determinations with regard to application of
section 818(c)(4) of Public Law 112-81 to contracts and subcontracts
for the acquisition of commercial items and COTS items, respectively.
This final rule will not apply the requirements of section 818(c)(4) of
Public Law 112-81 or the Governmentwide policy to prime contracts for
the acquisition of commercial items using FAR part 12 procedures and
will not flow the clause FAR 52.246-26 down to subcontracts for the
acquisition of commercial items.
IV. Expected Costs
DoD, GSA, and NASA have performed a regulatory cost analysis on
this rule. The following is a summary of the estimated public and
Government costs. Currently, there is no FAR requirement for
contractors to exchange information about counterfeit, suspect
counterfeit or major or critical nonconforming items in a
Governmentwide database. This final rule establishes the requirement
for contractors to search for and share information on such items in
GIDEP. Specifically, the rule adds a new FAR clause at 52.246-26,
Reporting Nonconforming Items, that includes a requirement for
contractors to: (1) Screen GIDEP for items which may have critical or
major nonconformances or items that are counterfeits or suspect
counterfeits; and (2) report to GIDEP and the contracting officer
within 60 days of becoming aware or having
[[Page 64693]]
reason to suspect--such as through inspection, testing, record review,
or notification from another source (e.g., seller, customer, third
party)--that an end item purchased by the contractor for delivery to,
or for, the Government is counterfeit or suspect counterfeit. These
screening and reporting requirements apply to contracts that are: (1)
Subject to higher-level quality standards in accordance with the clause
at FAR 52.246-11, Higher-Level Contract Quality Requirement; (2) for
critical items; or (3) for acquisitions over the simplified acquisition
threshold of electronic parts or end items, components, parts, or
assemblies containing electronic parts, by, or for the Department of
Defense.
By sharing this information in GIDEP, both the Government and
contractors will benefit from knowing about and avoiding items with
critical or major nonconformances, or items that are counterfeits or
suspect counterfeits. Sharing this information in GIDEP will reduce the
risk of having such items in the supply chain for mission critical
items where failure would endanger an agency mission, cause
catastrophic failures, or endanger human health and the environment.
Although unable to quantify the benefits of this rule, the Government
expects reduction in the high costs of potential damage to equipment,
mission failure, and even injury and death of personnel.
The following is a summary of the estimated public and Government
cost savings calculated in perpetuity in 2016 dollars at a 7-percent
discount rate:
----------------------------------------------------------------------------------------------------------------
Summary Public Government Total
----------------------------------------------------------------------------------------------------------------
Present Value.......................................... $209,045,344.99 $4,007,342.86 $213,052,687.85
Annualized Costs....................................... 14,633,174.15 280,514.00 14,913,688.15
Annualized Value Costs (as of 2016 if Year 1 is 2019).. 11,945,028.99 228,982.98 12,174,011.97
----------------------------------------------------------------------------------------------------------------
To access the full regulatory cost analysis for this rule, go to
the Federal eRulemaking Portal at https://www.regulations.gov, search
for ``FAR Case 2013-002,'' click ``Open Docket,'' and view ``Supporting
Documents.''
V. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
VI. Executive Order 13771
This rule is an E.O. 13771 regulatory action. The total annualized
value of the cost is $14,913,688.15. Details on the estimated costs can
be found in section IV. of this preamble.
VII. Regulatory Flexibility Act
DoD, GSA, and NASA have prepared a Final Regulatory Flexibility
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5
U.S.C. 601, et seq. The FRFA is summarized as follows:
This rule partially implements section 818 of the National
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2012 (Pub. L.
112-81, 10 U.S.C. 2302 Note), requiring regulations regarding the
definition, prevention, detection and reporting of actual or
suspected counterfeit electronic parts in the Government-Industry
Data Exchange Program (GIDEP) system. Section 818(c)(4) was directed
specifically at the reporting of counterfeit or suspect counterfeit
electronic parts by Department of Defense (DoD) contractors and
subcontractors; however, the Civilian Agency Acquisition Council and
the Defense Acquisition Regulations Counsel (the Councils) consider
the problem of nonconforming and counterfeit parts to be significant
across the Federal Government and, therefore this rule applies to
all applicable Federal contracts.
Respondents expressed concern about the scope of the proposed
rule and the potential difficulty of tracking and reporting,
especially for small businesses.
One respondent asserted that the analysis of the costs
and impacts of the proposed rule were greatly underestimated and
that small business most assuredly will be impacted as the proposed
rule requires a system for ongoing review of GIDEP, audit,
investigation, and reporting to GIDEP and the contracting officer.
The respondent pointed out that small businesses have limited
resources--both in terms of personnel and financial resources--to
establish systems necessary to engage in these kinds of continuous
monitoring, auditing, investigating, and reporting activities.
Another respondent stated that the proposed rule was
likely to increase cost for smaller businesses. The respondent cited
examples, such as by requiring them to significantly increase
quality assurance and compliance investments in order to remain at
some tier in the Government supply chain, increasing liability costs
associated with compliance failures, and increasing costs associated
with the heightened risk of application of the exclusionary
authority.
In response to these concerns, the Councils significantly
descoped the rule, both at the prime and the subcontract level. The
final rule no longer applies to contracts or subcontracts for the
acquisition of commercial items. Additionally, the rule does not
require application of section 818(c)(4) to DoD contracts and
subcontracts that do not exceed the simplified acquisition threshold
(see FAR 46.317(a) and 52.246-26(g)(1)).
The removal of the flowdown requirements will greatly reduce the
impact on small businesses. While this rule may require small
businesses to implement new business practices involving screening
GIDEP reports or reporting in GIDEP if a mission critical
nonconforming item is discovered, we do not expect the incident of
finding mission critical nonconformances to be frequent. These
practices will have the beneficial effect of making the business
more competitive as potential prime contractors and business
partners see that the firm has instituted practices to avoid passing
on counterfeit parts and items with critical nonconformances.
One respondent was concerned that adding negotiations over
quality assurance may further distort the playing field to hurt
small businesses attempting to retain a degree of control in their
operations when negotiating with prime contractors. Conversely,
lower-tier subcontractors, particularly commercial-item contractors
and small-business entities, may assert that they do not have (and
cannot afford to have) the sophisticated internal control systems
necessary to detect and categorize the types of nonconforming
conditions that require reporting to GIDEP. Neither the proposed
clause nor the proposed regulation offers any guidance for resolving
such conflicts.
Part of the concern of the respondent was that higher-tier
contractors could insist on imposing quality control and reporting
requirements that go well beyond those specified in the proposed
clause to ensure that they fulfill their own obligation under the
clause. This issue has been resolved through amendment of the
flowdown language to restrict changes to the clause.
The rule applies to contracts that have higher-level quality
assurance requirements (FAR 52.246-11), contracts for critical
items, and DoD contracts for electronic parts that exceed the
simplified acquisition threshold (other than commercial items). The
total number of contractors and subcontractors to which the rule
will apply is estimated to be
[[Page 64694]]
51,657. Of this number, it is estimated 42,153 or 82 percent will be
small businesses, of which approximately 10 percent may be required
to submit a GIDEP report in a given year.
This rule requires screening of GIDEP reports; written notice to
the contracting officer within 60 days of becoming aware through
inspection or testing of counterfeit or suspect counterfeit parts
for delivery to, or for, the Government; and reporting of
counterfeit and suspect counterfeit items and common items that have
a critical or major nonconformance into GIDEP.
The Government vitally needs a program to protect its critical
assets from the threat of loss and especially where failure of the
item could injure personnel or jeopardize a vital agency mission.
The Councils carefully weighed the stated concerns of businesses
against the serious impact parts with major or critical
nonconformances may have on critical items.
As described above, the Councils minimized the economic impact
on small entities consistent with the stated objects of the rule by
descoping the rule significantly to the maximum extent possible
while maintaining the ability to track and avoid counterfeit,
suspect counterfeit items and common items that have a critical or
major nonconformance.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat Division. The Regulatory Secretariat Division
has submitted a copy of the FRFA to the Chief Counsel for Advocacy of
the Small Business Administration.
VIII. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. chapter 35) applies. The
rule contains information collection requirements. OMB has cleared this
information collection requirement under OMB Control Number 9000-0187,
titled: ``Reporting of Nonconforming Items to the Government-Industry
Data Exchange Program.'' Due to the major descoping of the final rule,
the approved estimated number of responses is substantially less than
the estimated responses in the preamble to the proposed rule. However,
the number of hours per response has been increased to 6 hours.
Respondents: 5,166.
Responses per respondent: 1.
Total annual responses: 5,166.
Preparation hours per response: 6.
Total response burden hours: 30,996.
List of Subjects in 48 CFR Parts 1, 2, 7, 46, and 52
Government procurement.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of
Acquisition Policy, Office of Government-wide Policy.
Therefore, DoD, GSA and NASA are issuing a final rule amending 48
CFR parts 1, 2, 7, 46, and 52 as set forth below:
0
1. The authority citation for parts 1, 2, 7, 46, and 52 continues to
read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM
0
2. In section 1.106 amend the table by adding in numerical sequence,
the entry for ``52.246-26'' to read as follows:
1.106 OMB approval under the Paperwork Reduction Act.
* * * * *
------------------------------------------------------------------------
FAR segment OMB control No.
------------------------------------------------------------------------
* * * * *
52.246-26 9000-0187
* * * * *
------------------------------------------------------------------------
PART 2--DEFINITIONS OF WORDS AND TERMS
0
3. Amend section 2.101 in paragraph (b) by revising the definition
``Common item'' to read as follows:
2.101 Definitions.
* * * * *
(b) * * *
Common item means material that is common to the applicable
Government contract and the contractor's other work, except that for
use in the clause at 52.246-26, see the definition in paragraph (a) of
that clause.
* * * * *
PART 7--ACQUISITION PLANNING
0
4. Amend section 7.105, in paragraph (b)(19) by adding a new sentence
to the end of the paragraph to read as follows:
7.105 Contents of written acquisition plans.
* * * * *
(b) * * *
(19) * * * In contracts for supplies or service contracts that
include supplies, address whether higher-level quality standards are
necessary (46.202) and whether the supplies to be acquired are critical
items (46.101).
* * * * *
PART 46--QUALITY ASSURANCE
0
5. Amend section 46.101 by adding, in alphabetical order, the
definitions ``Counterfeit item'', ``Critical item'', ``Design
activity'', and ``Suspect counterfeit item'' to read as follows:
46.101 Definitions.
* * * * *
Counterfeit item means an unlawful or unauthorized reproduction,
substitution, or alteration that has been knowingly mismarked,
misidentified, or otherwise misrepresented to be an authentic,
unmodified item from the original manufacturer, or a source with the
express written authority of the original manufacturer or current
design activity, including an authorized aftermarket manufacturer.
Unlawful or unauthorized substitution includes used items represented
as new, or the false identification of grade, serial number, lot
number, date code, or performance characteristics.
Critical item means an item, the failure of which is likely to
result in hazardous or unsafe conditions for individuals using,
maintaining, or depending upon the item; or is likely to prevent
performance of a vital agency mission.
* * * * *
Design activity means an organization, Government or contractor,
that has responsibility for the design and configuration of an item,
including the preparation or maintenance of design documents. Design
activity could be the original organization, or an organization to
which design responsibility has been transferred.
* * * * *
Suspect counterfeit item means an item for which credible evidence
(including but not limited to, visual inspection or testing) provides
reasonable doubt that the item is authentic.
* * * * *
0
6. Add section 46.317 to read as follows:
46.317 Reporting Nonconforming Items.
(a) Except as provided in paragraph (b) of this section, the
contracting officer shall insert the clause at 52.246-26, Reporting
Nonconforming Items, in solicitations and contracts--as follows:
(1) For an acquisition by any agency, including the Department of
Defense, of--
(i) Any items that are subject to higher-level quality standards in
accordance with the clause at 52.246-11, Higher-Level Contract Quality
Requirement;
(ii) Any items that the contracting officer, in consultation with
the requiring activity determines to be critical items for which use of
the clause is appropriate;
(2) In addition (as required by paragraph (c)(4) of section 818 of
the National Defense Authorization Act for
[[Page 64695]]
Fiscal Year 2012 (Pub. L. 112-81)), for an acquisition that exceeds the
simplified acquisition threshold and is by, or for, the Department of
Defense of electronic parts or end items, components, parts, or
materials containing electronic parts, whether or not covered in
paragraph (a)(1) of this section; or
(3) For the acquisition of services, if the contractor will
furnish, as part of the service, any items that meet the criteria
specified in paragraphs (a)(1) through (a)(2) of this section.
(b) The contracting officer shall not insert the clause at 52.246-
26, Reporting Nonconforming Items, in solicitations and contracts when
acquiring--
(1) Commercial items using part 12 procedures; or
(2) Medical devices that are subject to the Food and Drug
Administration reporting requirements at 21 CFR 803.
(c) If required by agency policy, the contracting officer may
modify paragraph (b)(4) of the clause at 52.246-26, but only to change
the responsibility for the contractor to submit reports to the agency
rather than to Government-Industry Data Exchange Program (GIDEP), so
that the agency instead of the contractor submits reports to GIDEP
within the mandatory 60 days.
0
7. Amend section 46.407 by adding paragraph (h) to read as follows:
46.407 Nonconforming supplies or services.
* * * * *
(h) The contracting officer shall provide disposition instructions
for counterfeit or suspect counterfeit items in accordance with agency
policy. Agency policy may require the contracting officer to direct the
contractor to retain such items for investigative or evidentiary
purposes.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
8. Add section 52.246-26 to read as follows:
52.246-26 Reporting Nonconforming Items.
As prescribed in 46.317, insert the following clause:
Reporting Nonconforming Items (Dec 2019)
(a) Definitions. As used in this clause--
Common item means an item that has multiple applications versus
a single or peculiar application.
Counterfeit item means an unlawful or unauthorized reproduction,
substitution, or alteration that has been knowingly mismarked,
misidentified, or otherwise misrepresented to be an authentic,
unmodified item from the original manufacturer, or a source with the
express written authority of the original manufacturer or current
design activity, including an authorized aftermarket manufacturer.
Unlawful or unauthorized substitution includes used items
represented as new, or the false identification of grade, serial
number, lot number, date code, or performance characteristics.
Critical item means an item, the failure of which is likely to
result in hazardous or unsafe conditions for individuals using,
maintaining, or depending upon the item; or is likely to prevent
performance of a vital agency mission.
Critical nonconformance means a nonconformance that is likely to
result in hazardous or unsafe conditions for individuals using,
maintaining, or depending upon the supplies or services; or is
likely to prevent performance of a vital agency mission.
Design activity means an organization, Government or contractor,
that has responsibility for the design and configuration of an item,
including the preparation or maintenance of design documents. Design
activity could be the original organization, or an organization to
which design responsibility has been transferred.
Major nonconformance means a nonconformance, other than
critical, that is likely to result in failure of the supplies or
services, or to materially reduce the usability of the supplies or
services for their intended purpose.
Suspect counterfeit item means an item for which credible
evidence (including but not limited to, visual inspection or
testing) provides reasonable doubt that the item is authentic.
(b) The Contractor shall--
(1) Screen Government-Industry Data Exchange Program (GIDEP)
reports, available at www.gidep.org, as a part of the Contractor's
inspection system or program for the control of quality, to avoid
the use and delivery of counterfeit or suspect counterfeit items or
delivery of items that contain a major or critical nonconformance.
This requirement does not apply if the Contractor is a foreign
corporation or partnership that does not have an office, place of
business, or fiscal paying agent in the United States;
(2) Provide written notification to the Contracting Officer
within 60 days of becoming aware or having reason to suspect, such
as through inspection, testing, record review, or notification from
another source (e.g., seller, customer, third party) that any end
item, component, subassembly, part, or material contained in
supplies purchased by the Contractor for delivery to, or for, the
Government is counterfeit or suspect counterfeit;
(3) Retain counterfeit or suspect counterfeit items in its
possession at the time of discovery until disposition instructions
have been provided by the Contracting Officer; and
(4) Except as provided in paragraph (c) of this clause, submit a
report to GIDEP at www.gidep.org within 60 days of becoming aware or
having reason to suspect, such as through inspection, testing,
record review, or notification from another source (e.g., seller,
customer, third party) that an item purchased by the Contractor for
delivery to, or for, the Government is--
(i) A counterfeit or suspect counterfeit item; or
(ii) A common item that has a major or critical nonconformance.
(c) The Contractor shall not submit a report as required by
paragraph (b)(4) of this clause, if--
(1) The Contractor is a foreign corporation or partnership that
does not have an office, place of business, or fiscal paying agent
in the United States;
(2) The Contractor is aware that the counterfeit, suspect
counterfeit, or nonconforming item is the subject of an on-going
criminal investigation, unless the report is approved by the
cognizant law-enforcement agency; or
(3) For nonconforming items other than counterfeit or suspect
counterfeit items, it can be confirmed that the organization where
the defect was generated (e.g., original component manufacturer,
original equipment manufacturer, aftermarket manufacturer, or
distributor that alters item properties or configuration) has not
released the item to more than one customer.
(d) Reports submitted in accordance with paragraph (b)(4) of
this clause shall not include--
(1) Trade secrets or confidential commercial or financial
information protected under the Trade Secrets Act (18 U.S.C. 1905);
or
(2) Any other information prohibited from disclosure by statute
or regulation.
(e) Additional guidance on the use of GIDEP is provided at
http://www.gidep.org/about/opmanual/opmanual.htm.
(f) If this is a contract with the Department of Defense, as
provided in paragraph (c)(5) of section 818 of the National Defense
Authorization Act for Fiscal Year 2012 (Pub. L. 112-81), the
Contractor or subcontractor that provides a written report or
notification under this clause that the end item, component, part,
or material contained electronic parts (i.e., an integrated circuit,
a discrete electronic component (including, but not limited to, a
transistor, capacitor, resistor, or diode), or a circuit assembly))
that are counterfeit electronic parts or suspect counterfeit
electronic parts shall not be subject to civil liability on the
basis of such reporting, provided that the Contractor or any
subcontractor made a reasonable effort to determine that the report
was factual.
(g) Subcontracts.
(1) Except as provided in paragraph (g)(2) of this clause, the
Contractor shall insert this clause, including this paragraph (g),
in subcontracts that are for--
(i) Items subject to higher-level quality standards in
accordance with the clause at FAR 52.246-11, Higher-Level Contract
Quality Requirement;
(ii) Items that the Contractor determines to be critical items
for which use of the clause is appropriate;
(iii) Electronic parts or end items, components, parts, or
materials containing electronic parts, whether or not covered in
paragraph (g)(1)(i) or (ii) of this clause, if the subcontract
exceeds the simplified
[[Page 64696]]
acquisition threshold and this contract is by, or for, the
Department of Defense (as required by paragraph (c)(4) of section
818 of the National Defense Authorization Act for Fiscal Year 2012
(Pub. L. 112-81)); or
(iv) For the acquisition of services, if the subcontractor will
furnish, as part of the service, any items that meet the criteria
specified in paragraphs (g)(1)(i) through (g)(1)(iii) of this
clause.
(2) The Contractor shall not insert the clause in subcontracts
for--
(i) Commercial items; or
(ii) Medical devices that are subject to the Food and Drug
Administration reporting requirements at 21 CFR 803.
(3) The Contractor shall not alter the clause other than to
identify the appropriate parties.
(End of clause)
[FR Doc. 2019-24960 Filed 11-21-19; 8:45 am]
BILLING CODE 6820-EP-P